Forex trading has become more and more popular in recent years, being accessible to all types of investors.
Read this article and learn more about the currency market, courtesy of https://tradingreview.net/.
Forex market is the market on which currency pairs are traded. This is also known as the currency market and is, in fact, the values of currencies relative to others.
The FX Market brings together many actors, from first-time traders to professional investors. What you need to know from the very beginning is that it is accessible to all categories of traders. In addition to easy access, it has many other benefits. Significant liquidity and significant traded volumes are the main strengths of the Forex market. At the same time, quotes are made in real time, 24 hours a day, five days out of 7. It is, therefore, a day and night open market that allows traders around the world to trade their favorite instruments. The currency pair market is very accessible to start-up traders and through low fees and commissions.
Forex Market – Getting Started
The exchange rate of a currency is calculated using a base currency. To understand the currency market, here is a conclusive example:
Let us imagine that a country’s economy is falling. It is, therefore, logical to think that the currency of that country will lose its value. Thus, a trader can speculate that a currency pair reduces this currency.
If this country were the United States, traders would bet on the falling of the US dollar.
How does Forex trading work in this case? Well, there are two solutions:
- Either the trader buys CFDs on the EUR / USD currency pair (Euro-US dollar).
- Either sell CFDs on the USD / JPY currency pair (US dollar – Japanese yen).
You probably wonder how we find out when it comes to selling or buying CFDs on a currency pair. Well, to make the right decision on this, we need to know how to read Forex quotes. See this.
What is a Forex Quote?
The first thing you need to know is that a currency pair is composed of two currencies. Therefore, every time you look at the currency pair, do not forget that it is a coin compared to another money. A quote is consequently the price of a coin denominated in another currency.
Wondering how do we read Forex quotes? Let’s take the example of the euro-pound sterling (EUR / GBP). The graph of this currency pair will show in real time the euro (EUR) versus the pound sterling (GBP). An exchange rate of 0.8860 – 0.8662 represents the value of one euro in exchange for a GBP at 0.8860, respectively for sale (0.8662).
Another fundamental concept in Forex trading is the spread.
The importance of spread in the foreign exchange market
Spread is the difference between the purchase price and the selling price of a currency pair. It comes from the gap between supply and demand. A lower spread is preferred by traders, especially those who practice scalping and day trading because it allows them to become profitable quickly.
In the example above, the spread is 2 points (0.8862 – 0.8860 = 2).
You ask yourself what is the currency you buy and what is the money you sell when placing an order? Below is a concrete example:
- If you place a purchase order for the EUR / GBP pair, buy the euro and sell pound sterling.
- If you place a sales order for the EUR / GBP pair, sell the euro and buy a pound sterling.
Check it out: https://en.wikipedia.org/wiki/Foreign_exchange_market
Why is the leverage that is indispensable in trading Forex
A leverage effect is a tool that allows you to increase your ability to speculate on the foreign exchange market without needing additional funds. In order to better understand the leverage effect, we offer an illustrative example:
A leverage of 1: 500 allows you to invest in the EUR / USD pair equivalent to 100,000 euros with a margin of just 200 euros on a trading account.
If you are wondering what level of leverage you should use, you should consider the following: The longer the period you want to keep your position open, the less leverage the lever should be. It is essential to keep in mind that the inappropriate use of leverage is the leading cause of foreclosure of many Forex accounts.
So moms, are you excited to invest in Forex for your next year’s financial goals?